Thank you, Mr. Chair.
As mentioned, my name is Nathaniel Lipkus. I'm a member of the council of the Intellectual Property Institute of Canada, which is frequently referred to as IPIC. I'd like to first thank this committee for inviting IPIC to present to you our recommendations on budget 2018 and to answer any questions.
As you may know, IPIC is the Canadian professional association of patent agents, trademark agents, and lawyers practising in intellectual property on behalf of clients or employers across Canada. We believe our membership is uniquely positioned to help support the government's innovation objectives. IP agents help protect innovation investments and therefore form the backbone of any country's innovative industry.
A Canadian national IP strategy offers the perfect opportunity to create much-needed incentives for Canadian innovators to protect their inventions and enable their businesses to flourish in the long term. We recommend three incentives that would dramatically improve the way we as Canadians protect our IP: a first patent program, a commercialization coupon, and an innovation box.
Number one is the first patent program. In last year's finance committee report in preparation for last year's budget, the committee recommended that the Government of Canada create a first patent program with a design similar to that launched by the Government of Quebec. This program should subsidize the expenses incurred by small and medium-sized businesses obtaining a first patent. This recommendation ultimately was not included in budget 2017; however, we still believe the need exists, and it aligns now more than ever with the government's plans around the innovation agenda and its plan to create a national IP strategy.
Statistics from the U.S. show that patent allowances for start-ups have a significant economic impact, such as a 51% increase in sales growth and a 36% increase in employment growth. Such a program has existed in Quebec since July 2015. The program offers eligible small to medium-sized businesses a subsidy on expenses related to obtaining their first patent. The demand for this program has been so high that funds were quickly exhausted in less than a year.
A similar program at the federal level would directly help Canadian inventors, start-ups, and SMEs who are at the critical point where they have developed an innovative device or method and are able to seek patent protection, but do not have the resources to do so. This program would move the needle towards protection. By protecting their inventions early and allocating safe resources to supporting commercialization of their venture, they'll be better placed to establish their business and in the future improve their chances of scaling up within Canada and abroad.
We recommend the federal government create a similar program through budget 2018.
Number two is the commercialization coupon. To encourage researchers who receive federal grant funding to protect their IP and take the important step towards commercializing the inventions developed in the course of their research, we believe the government should make a commercialization coupon available. This should be a one-time-only option in the span of a grant term, which would provide a small amount of additional funding for commercialization activities such as filing for IP protection, conducting market studies, or hiring for business plan preparation. This coupon would allow commercialization activities to follow and be coupled with grant money, allowing researchers to be successful following the completion of their project.
Number three is the innovation box. The government should adopt an innovation box model to provide a reduced tax rate for income derived from commercialization in Canada of intellectual property. The term “innovation box” comes from a check box on tax forms to identify revenues that would be eligible for the reduced innovation tax rate. This idea originates from several other jurisdictions—most notably the United Kingdom, but also earlier this year in Quebec—where governments lowered corporate taxes on income derived from commercializing IP.
Although early, data is starting to emerge from the U.K. patent box program, where claims for the program are rapidly increasing, and interestingly, so are claims for existing R and D tax credits. R and D claims are up more than 22% for SMEs and more than 5% for large companies in the most recent statistics available. The potential downstream impact from these U.K. and similar programs may leave Canada lagging further behind our major trading partners if we don't implement something similar.
In conclusion, IP agents would like to continue supporting the government's goal of pushing Canada forward to be a leading innovator in today's economy.
Our first recommendation of a first patent program would help start-ups and small and medium-sized enterprises protect their initial IP. Our second recommendation would help researchers with federal grants to achieve successful commercialization. Our third recommendation would help spark innovation across Canada through lower taxes. All three recommendations, though, have a similar goal, to help support and protect innovative activities throughout Canada that would increase economic growth and build our innovation ecosystem.
Finally, Canada has the potential to be a leading innovator in today's advancing marketplace, and IP agents are at the forefront of helping us succeed with that vision.
Thanks so much.